Wednesday, January 20, 2016

The consumer is alright

The negative deflation report for consumer prices in December confirms that the US consumer is alright, and workers' paychecks in real terms continue to grow.

In nominal terms, retail sales declined -0.1% in December. After adjusting for inflation, we now know they were flat:

Further, December's decline of -1.0% in general merchandise sales, the 3rd worst in the last 5 years:

was almost certainly weather related, since nobody east of the Mississippi was buying winter goods as they basked in September-like warmth.

The average American is a worker as well as a consumer, and since nominal wages grew +0.1% in December, real wages grew +0.2% to a new 35 year high:

Aggregate real wages also grew, and are now up +18.7% for this expansion:

[NOTE: That means that, 74 months from the bottom, aggregate real wages have increased more than either expansion in the 1970s, and also the 2000s. This expansion lags the very strong 1960s and 1990s economies by a fair stretch, and is only slightly behind (by about 1%) the 1980s expansion.]
If there is a fly in the ointment, it is that YoY CPI inflation has gone from 0 to +0.7% in the last 3 months, meaning that YoY real wage growth decelerated in the second half of 2015:

So I don't want to overstate this. We still have real problems with underemployment and sluggish wage growth. But the average American is doing better now than they have in nearly a decade, and the consumer economy - 70% of the total - is simply not rolling over.

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